Powered by Google

Search form

Economist's Outlook

Subscribe to Economist's Outlook feed
Updated: 34 min 43 sec ago

Raw Count of Home Sales (April 2016)

Thu, 06/02/2016 - 11:02
  • Existing-home sales increased 1.7 percent in March from one month prior while new home sales rose 16.6 percent.  These headline figures are seasonally adjusted figures and are reported in the news.  However, for everyday practitioners, simple raw counts of home sales are often more meaningful than the seasonally adjusted figures.  The raw count determines income and helps better assess how busy the market has been.
  • Specifically, 471,000 existing-homes were sold in April while new home sales totaled 61,000.  These raw counts represent a 12 percent gain for existing-home sales from one month prior while new home sales increased 22 percent.  What was the trend in recent years?  Sales from March to April increased by 16 percent on average in the prior three years for existing-homes and rose 3 percent for new homes.  So this year, existing-homes underperformed compared to their recent norm while new home sales outperformed.
  • Why are seasonally adjusted figures reported in the news?  To assess the overall trending direction of the economy, nearly all economic data – from GDP and employment to consumer price inflation and industrial production – are seasonally adjusted to account for regular events we can anticipate that have an effect on data around the same time each year.  For example, if December raw retail sales rise by, say, 20 percent, we should not celebrate this higher figure if it is generally the case that December retail sales rise by 35 percent because of holiday gift buying activity.  Similarly, we should not say that the labor market is crashing when the raw count on employment declines in September just as the summer vacation season ends.  That is why economic figures are seasonally adjusted with special algorithms to account for the normal seasonal swings in figures and whether there were more business days (Monday to Friday) during the month.  When seasonally adjusted data say an increase, then this is implying a truly strengthening condition.
  • What to expect about home sales in the upcoming months in terms of raw counts?  Independent of headline seasonally adjusted figures, expect busier activity in May and even better activity in June for existing-home sales. For example, in the past 3 years, May sales increased by 10 to 13 percent from April and with more gains in June when sales typically rose by 7 to 16 percent from May. For the new home sales market, the raw sales activity seems to be volatile in May and June. For example, in the past 3 years, May sales rose by 10 percent in 2014 while they decreased by 2 to 7 percent in 2013 and 2015. Similarly, sales in June increased by 8 percent in 2013 while they decreased by 6 to 12 percent in 2014 and 2015.

Contract Settlement Issues in February-April 2016: Financing, Home Inspection, and Appraisals are Major Issues

Wed, 06/01/2016 - 15:49

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “In the past three months, think of your most recent sales contract that was either settled/closed or terminated. Please explain how the deal concluded. What problems did you encounter, if any?”

In reporting on their last contract that went into settlement or was terminated over the period February–April 2016, 66 percent of contracts were settled on time, 28 percent had delayed settlement, and six percent were terminated.

 

Among contracts that had a delayed settlement (28 percent), financing, appraisal, and home inspection issues were the primary causes of the delay.

Among contracts that were terminated (six percent), home inspection issues were the major cause of termination, followed by issues related to the buyer obtaining financing.

Smaller Markets Favor Apartment Landlords in 2016.Q1

Wed, 06/01/2016 - 10:35

Economic performance for the first quarter of 2016 was upwardly revised this past week by the Bureau of Economic Analysis. Real gross domestic product (GDP) advanced 0.8 percent on an annual basis, up from the initial estimate of 0.5 percent.

Payrolls rose at a solid pace, adding 609,000 net new jobs. Average weekly earnings of private employees rose by 2.1 percent in the first quarter of this year, compared to one year earlier. The unemployment rate averaged 4.9 percent in the first quarter 2016. The average duration of unemployment declined from 31 weeks in the first quarter of 2015 to 29 weeks in the first quarter of this year.

The labor force participation (LFP) rate rose slightly as more Americans returned to the labor markets, but continued to hover at historic lows.  The LFP rate was 62.8 percent in the first quarter of 2015, slid to 62.5 percent in the third and fourth quarters, and rose to 62.9 percent in the first quarter of 2016. In comparison, before the Great Recession the LFP rate was 65.9 percent.

Consumer confidence, as measured by The Conference Board, was unchanged at 96.0 in the first quarter of 2015, compared with the prior quarter. Separately, the Consumer sentiment index compiled by the University of Michigan moved up slightly in the first quarter of the year to 91.6, compared with the 91.3 value from the fourth quarter. Both remain lower on a year-over-year basis.

With improving employment prospects and a return to labor markets, household formation has returned to its long-term trend. Historically, household formation averaged 1.3 million every year over the 1958-2007 period. Between 2008 and 2013, the average number of new households dropped to 579,000 per year, underscoring the severity of the Great Recession and ensuing slow recovery. During 2015, household formation advanced at a rather moderate pace of 191,000 new households. So far, 2016 is off to a slow start, as the first quarter’s data recorded a 306,000 decline in net household formation.

Demand for multifamily properties softened during the quarter, but remained on an upward trajectory. Renter occupied housing units totaled 42.9 million units in the first quarter of 2015, a 363,000 unit advance from the first quarter of 2015, based on U.S. Census Bureau data. National vacancy rates averaged 7.0 percent for rental housing during the first quarter, 10 basis points lower than the same period in 2015. Median rents for rental units averaged $870 in the first quarter of this year.

Commercial fundamentals in smaller markets continued improving during the first quarter of 2016, but at a slower pace. Leasing volume during the quarter rose 1.3 percent over the prior quarter. Leasing rates advanced at a slower pace as well, rising 1.9 percent in the first quarter, compared with the 2.5 percent advance recorded during the fourth quarter. As rising new supply loosens major markets, apartments in SCRE markets experienced availability decreases, with the national average declining 61 basis points year-over-year, to 7.2 percent in the first quarter of 2016. Average apartment rents for the first quarter were $785 per unit.

 

Access the Commercial Real Estate Outlook: 2016.Q2 report here.

In What States Did Properties Sell Quickly in February–April 2016?

Tue, 05/31/2016 - 15:22

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?”

In February–April 2016, properties typically sold within a month in the District of Columbia, Washington, Oregon, California, Alaska, Minnesota, Nebraska, Colorado, and Texas, according to the April 2016 REALTORS® Confidence Index Survey Report. Local conditions vary, and the data is provided for REALTORS® who may want to compare local markets against other states and the national summary.11

Nationally, properties sold in April 2016 were typically on the market 39 days (47 days in March 2016; 39 days in April 2015). Short sales were on the market for the longest time at 120 days, while foreclosed properties typically stayed on the market for only 51 days. Non-distressed properties were typically on the market for 37 days. Approximately 45 percent of properties were on the market for less than a month when sold. About 13 percent were on the market for longer than six months.

11 Respondents were asked “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?” The median is the number of days at which half of the properties stayed on the market. In generating the median days on market at the state level, we use data for the last three surveys to have close to 30 observations. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations.

Experienced REALTORS® Passing on the Torch

Tue, 05/31/2016 - 11:12

Several major trends emerged in the 2016 Member Profile. One notable change in the demographics of NAR members is that a cadre of experienced REALTORS® may be retiring or looking to retire in the next two years.

In the 2016 Member Profile, we saw an influx of new members entering the business for the first time. Members that have less than two years of experience increased from 17 percent to 28 percent. Concurrently, the share of members with the most experience also dropped. In the 2015 survey, REALTORS® with more than 25 years of experience declined from 21 percent to 15 percent in 2016.

Looking at age, we saw the share of older members drop also signaling that a group of REALTORS® could see retirement on the horizon. In the 2015 Member survey, 41 percent were 60 years and older. By 2016, the share dropped to only 30 percent of members over 60 years.

Furthermore, we asked members how certain they are about remaining in the business for the next two years and the share fell slightly from 84 percent in the 2015 survey to 83 percent in 2016. Five percent were not certain that they would remain in real estate, up from three percent in 2015. For REALTORS® with 16 years or more experience, six percent were not certain that they would remain in the business in 2016, up from three percent in 2015. NAR membership was reported at 1,173, 710 in April 2016—that’s an estimated 70,422 REALTORS® with more than 16 years of experience that may retire in the next few years.

Home Searches with Open Houses

Fri, 05/27/2016 - 13:32

While the top information sources used during the home buying process continue to be online websites (89 percent) and real estate agents (87 percent), 48 percent of recent home buyers used open houses as an information source during their home search process. Based on data from the 2015 Profile of Home Buyers and Sellers, we can see which recent home buyers utilized open houses most often during their search.

  • Twenty percent of buyers in the Northeast and 18 percent of buyers in the West frequently used open houses when searching for a home, compared to 11 percent of buyers in the South and nine percent of buyers in the Midwest.
  • Buyers of new homes were more likely to use open houses than buyers of previously owned homes. Fifty-six percent of new home buyers used open houses, compared to only 46 percent of buyers of previously owned homes.
  • Single females and married couples were the most likely of any household composition to visit open houses as their first step in the home buying process, both at three percent.
  • Married couples (15 percent) and unmarried couples (12 percent) frequently used open houses when searching for a home.

  • Buyers who were 75 years or older frequently used open houses when searching, more than any other age group at 22 percent. Seventeen percent of buyers between 45 and 54 frequently used open houses.

Find more information on open houses in the 2015 Profile of Home Buyers and Sellers and at the Media Hooks for REALTOR® Open Houses.

Local FHFA Housing Price Index

Fri, 05/27/2016 - 11:22
  • Yesterday, we looked at the FHFA release focusing on national data trends. Today, we’ll dig a bit deeper to look at more local data at the regional, state, and city or MSA level.
  • Monthly FHFA releases data at the Census division level and quarterly it releases state and metro area data. These new data confirm the trend seen in NAR measures.
  • At the regional level: the most robust home price gains from a year ago in the first quarter of 2016 were in the West. NAR reported price change of 6.2 percent in March. According to FHFA year over year prices in March 2016 rose 9.5 percent in the Pacific division which includes Hawaii, Alaska, Washington, Oregon, and California and 8.5 percent in the Mountain division which includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico.
  • At the other end of the spectrum, NAR data showed the smallest price gains from a year ago in first quarter were in the Northeast (2.0 percent at the end of 2016Q1 despite a strong March growth of 5.6 percent from a year ago). FHFA showed a similar pattern. Prices rose 3.2 percent in New England (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut) and 2.3 percent in the Middle Atlantic states (New York, New Jersey, Pennsylvania) from March one year ago.
  • State by state data, pictured below, shows more detail. While Florida had strong growth, the South as a whole had more moderate growth than the West where Oregon, Washington, Nevada, and Colorado rounded out the top 5 states by pace of year over year price increase in the 1st quarter of 2016.
  • Among metro areas, every single area on the FHFA’s top-20 list of metros was located in the West or Florida with the exception of Dallas-Plano-Irving, Texas—the 20th ranked metro area by year over year price growth. In the NAR quarterly release in early May, NAR also saw strong performance from metro areas in Florida and the West region.

FHFA Housing Price Index

Thu, 05/26/2016 - 15:22
  • This week, the Federal Housing Finance Agency (FHFA) released their housing price index data for March 2016. FHFA data showed that prices were up 6.1 percent in March from one year ago, slightly above the 5.8 to 6.0 percent year over year growth seen in November through February.
  • Last week the National Association of Realtors® (NAR) reported price data for April, and next week Case Shiller data will be reported for March.
  • NAR data showed that prices grew at a 5.1 percent pace from March 2015 to March 2016. NAR also reported on new April 2016 data which showed a bump up to 6.3 percent growth from one year ago.
  • Recent housing price data at the national level suggests that home prices continue to increase at a strong pace—still faster than what would be considered typical. Strong buyer demand and low inventories coupled with still relatively low levels of new construction are continuing to push prices up and keep housing market tipped in favor of sellers in most local markets. NAR’s pending home sales data, released today for April, surged 5.1% in the month, providing additional evidence that demand remains strong.
  • Of course, potential buyers and sellers should be sure to put the national numbers in the context of what is going on in their local markets. Some areas have been stronger while others have shown weakness driven largely by local factors.  Sellers in these somewhat weaker areas may not have as much power to demand higher prices for their homes given the local market. How does your market compare to the national price trends?
  • NAR reports the median price of all homes that have sold while the Federal Housing Finance Agency report the results of a weighted repeat-sales index, a process that requires more data and more time to compute. For this reason, NAR data is released nearly a month ahead of FHFA data, and changes in the NAR median price tend to the FHFA data and currently suggest that additional strong price growth could be on the horizon. 

Retail Vacancies Decline In Q1.2016

Thu, 05/26/2016 - 14:57

The U.S. economy sputtered during the first quarter of 2016, as global economic activity throttled back and companies found financial markets’ volatility unsettling. Based on the first estimate from the Bureau of Economic Analysis, real gross domestic product (GDP) rose at an annual rate of 0.5 percent. The figure is in line with last year’s first quarter reading of 0.6 percent.

Consumer spending was soft, rising at an annual rate of 1.9 percent in the first quarter, with most of the gain driven by services. Retail sales, which were weak during the winter holiday season, posted further slowdown. Spending on goods was virtually flat, given the 0.1 percent increase. Spending on durable goods—cars, furnishing, appliances and recreational goods—declined 1.6 percent. Consumers spent more on food and gasoline during the quarter, lifting nondurable goods consumption 1.0 percent. Consumer spending on services rose 2.7 percent on an annual basis, with transportation, recreation, healthcare, as well as lodging and restaurants driving expenditures.

The first quarter employment landscape offered a few high points. Payrolls rose at a solid pace, adding 609,000 net new jobs. Average weekly earnings of private employees rose by 2.1 percent in the first quarter of this year, compared to one year earlier. The unemployment rate averaged 4.9 percent in the first quarter 2016. At the end of December there were 7.9 million unemployed Americans, while an additional 6.0 million were employed part-time for economic reasons.  The average duration of unemployment declined from 31 weeks in the first quarter of 2015 to 29 weeks in the first quarter of this year.

 

Consumer confidence, as measured by The Conference Board, was unchanged at 96.0 in the first quarter of 2015, compared with the prior quarter. Separately, the Consumer sentiment index compiled by the University of Michigan moved up slightly in the first quarter of the year to 91.6, compared with the 91.3 value from the fourth quarter. Both remain lower on a year-over-year basis.

The retail sector is tracking demographic changes and affluent buyers and growing markets. Demand for retail properties increased in tandem with rising employment and confidence. Retain net absorption totaled 18.6 million square feet in the first quarter of 2016, a 20.8 percent increase from a year ago, according to JLL. Retail development activity remained modest, driving rent growth. Rents for retail properties rose 1.5 percent during the quarter. Vacancy rates for retail buildings declined 40 basis points, to 5.6 percent, based on JLL data.

 

Commercial fundamentals in smaller markets continued improving during the first quarter of 2016, but at a slower pace. Leasing volume during the quarter rose 1.3 percent over the prior quarter. Leasing rates advanced at a slower pace as well, rising 1.9 percent in the first quarter, compared with the 2.5 percent advance recorded during the fourth quarter.

NAR members’ average gross lease volume for the quarter was $473,000, 36.4 percent lower than the previous period. New construction picked up, posting a 5.3 percent gain from the fourth quarter of 2015, compared with 3.7 percent in the prior quarter.  Even with soft retail sales, retail vacancies declined 122 basis points, to 12.5 percent during the quarter.

To access the Commercial Real Estate Outlook: 2016.Q2 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.

Highlights of April 2016 REALTORS® Confidence Index Survey

Thu, 05/26/2016 - 11:23

Market conditions vary across local markets, but the REALTORS® confidence and traffic indices indicate that overall housing market activity slightly improved in April 2016 from April 2015. Compared to one year ago, housing market activity was essentially unchanged.[1] REALTORS® reported strong demand in their areas, but severely low inventory has weighed heavily on sales, pushing prices up and making homes increasingly unaffordable, especially for first-time buyers.

First-time home buyers accounted for 32 percent of sales. Purchases for investment purposes made up 13 percent of sales, while distressed properties were seven percent of sales. Cash sales accounted for 24 percent of sales. Nationally, half of properties that sold in April 2016 were on the market 39 days. Contracts that went into settlement in April typically took 40 days to close.

Very low supply, steep price increases, and lender processing delays were reported as the key issues affecting sales, particularly to first-time homebuyers. Appraisal backlogs and “below-market” and “inconsistent” appraisals were also reported to be causing transaction delays and cancellations.The collapse in oil prices remains a concern in the oil-producing states of North Dakota, Alaska, New Mexico, Wyoming, Oklahoma, Texas, and Montana. Still, with the spring and summer months coming, respondents were confident about the outlook for the next six months across all property types. Respondents typically expected prices to increase 3.8 percent in the next 12 months.

[1] The indices are not seasonally adjusted.

[2] NAR’s 2015 Profile of Home Buyer and Sellers (HBS) reports that among primary residence home buyers, 32 percent were first-time home buyers. The HBS surveys primary residence home buyers, while the monthly RCI Survey surveys REALTORS® and also captures purchases for investment purposes and vacation/second homes.

Median Expected Price Change in Next 12 Months, By State, Based on February-April 2016 Surveys

Wed, 05/25/2016 - 11:26

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “In the neighborhood or area where you make most of your sales, what are your expectations for residential property prices over the next year?”

Among REALTORS® who responded to the April 2016 survey, the national median expected price change over the next 12 months was 3.8 percent (3.7 percent in March 2016; 3.9 percent in April 2015), according to the April 2016 REALTORS® Confidence Index Survey Report.[1] On the one hand, REALTORS® expect housing price growth to moderate as rising prices have made homes less affordable for many. On the other hand, tight supply is leading to expectations of further price increases.

The map below shows the median expected price change over the next 12 months for each state based on the February–April 2016 RCI surveys. The District of Columbia and the states of Washington, Oregon, and Colorado are the areas that are expected to have the highest price growth, with the median expected price growth at more than five to seven percent in each of these states. REALTOR® respondents from California, Nevada, Utah, Minnesota, Michigan, Tennessee, South Carolina, Georgia, and Florida also expected strong price growth, with the median expected price growth at more than four to five percent in each of these states.

[1] Respondents were asked “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you make most of your sales?”

April 2016 Existing-Home Sales

Tue, 05/24/2016 - 15:35
  • NAR released a summary of existing-home sales data showing that the housing market sales increased for the second consecutive month, as April’s existing-home sales reach the 5.45 million seasonally adjusted annual rate.  April’s existing sales are up 6.0 percent from a year ago.
  •  The national median existing-home price for all housing types was $232,500 in April, up 6.3 percent from a year ago.
  • Regionally, all regions showed growth in prices from a year ago, with the Midwest leading at 7.7 percent. The West and South both followed with a 6.5 percent increase. The Northeast had the smallest gain of 4.1 percent from April 2015.
  • From March, two of the four regions experienced increases in sales. The Northeast and Midwest dominated regional sales. The Midwest had the largest increase of 12.1 percent while the Northeast had a 2.8 percent increase. The West had a decline of 1.7 percent and the South decreased by 2.7 percent.
  • All regions showed gains in sales from a year ago, except the West where sales declined 3.4 percent. The Northeast had the biggest increase of 17.5 percent while the South had the smallest gain of 4.3 percent. The South leads all regions in percentage of national sales at 40.2 percent while the Northeast has the smallest share at 13.6 percent.
  • April’s inventory figures are up 9.2 percent from last month to 2.14 million homes for sale but the level is below historical averages. Inventories are down 3.6 percent from a year ago. It will take 4.7 months to move the current level of inventory at the current sales pace. It takes approximately 39 days for a home to go from listing to a contract in the current housing market unchanged from a year ago.
  • Single family sales modestly increased 0.6 percent while condos also increased 10.3 percent compared to last month. Single family home sales increased 6.2 percent and condo sales are also up 4.9 percent from a year ago. Both single family and condos had an increase in price with single family up 6.2 percent and condos up 6.8 percent from April 2015.

Rising E-Commerce Drives Industrial Demand

Tue, 05/24/2016 - 11:13

Economic activity momentum dropped in the first quarter of 2016. Real gross domestic product (GDP) advanced at an annual rate of 0.5 percent, according to the Bureau of Economic Analysis’s first estimate. International trade felt the impact of the stronger dollar in the fourth quarter. The corporate outlook took a downward turn, with business investments dropping 5.9 percent on an annual basis in the first quarter. Businesses cut back investments in equipment and commercial real estate to the tune of 8.6 percent and 10.6 percent, respectively. With the dollar rising, international trade bore the brunt of a weakening economic environment. Exports declined by 2.6 percent, while imports moved sideways with a 0.2 percent annual rate of growth.

However, as more consumers shift to on-line purchases, distribution centers play a greater role in fulfilling orders, strengthening industrial demand. Retail e-commerce sales totaled $92.8 billion in the first quarter of the year, a 15.2 percent gain compared with the same quarter of the prior year, according to the Census Bureau. E-commerce sales represented 7.8 percent of total retail sales.

The first quarter employment landscape offered a few high points. Payrolls rose at a solid pace, adding 609,000 net new jobs. Average weekly earnings of private employees rose by 2.1 percent in the first quarter of this year, compared to one year earlier. With demand for industrial properties rising, transportation and warehousing employment gained 22,200 new positions, while wholesale trade employment rose by 24,700 jobs.

The industrial sector recorded rising fundamentals in the first quarter, with rising demand and declining vacancies. Industrial net absorption totaled 52.3 million square feet in the first quarter, up 6.6 percent year-over-year, according to JLL. Warehouse and distribution centers accounted for the largest share of demand, followed by manufacturing and special purpose buildings. Speculative supply increased, as well. New completions totaling 48.8 million square feet, of which 37.5 million square feet were speculative. Demand continued outpacing supply, driving industrial vacancies down to 6.2 percent, 50 basis points from the prior year. Industrial rents rose 5.9 percent, to an average of $4.92 per square foot in the first quarter.

Commercial fundamentals in smaller markets continued improving during the first quarter of 2016, but at a slower pace. Leasing volume during the quarter rose 1.3 percent over the prior quarter. Leasing rates advanced at a slower pace as well, rising 1.9 percent in the first quarter, compared with the 2.5 percent advance recorded during the fourth quarter. Vacancy rates varied across regional and product types in REALTORS® markets. Industrial availability reached 11.1 percent, a 23-basis point decrease on a yearly basis.

 

To access the Commercial Real Estate Outlook: 2016.Q2 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.

 

 

 

 

Buyer and Seller Traffic Conditions by State in February‒April 2016

Mon, 05/23/2016 - 10:37

In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® (NAR) asks members to rate the past month’s buyer and seller traffic in the neighborhood or area where they make most of their sales. NAR compiles the responses on buyer traffic into a REALTORS® Buyer Traffic Index and the responses on seller traffic into a REALTORS® Seller Traffic Index.

The maps below show the condition of buyer and seller traffic using data collected from February‒April 2016, according to the April 2016 REALTORS® Confidence Index Survey Report.

Measured by the REALTORS® Buyer Traffic Index, buyer traffic was “strong” in many states except in Alaska and Wyoming.[1] Alaska and Wyoming are being adversely impacted by the slump in oil prices and cutbacks in oil drilling. Texas, which has a more diversified economy than Alaska and Wyoming, continues to experience “strong” buyer demand.

Amid strong demand, seller traffic was “weak” across most states, measured by the REALTORS® Seller Traffic Index.[2]

Sparse new home construction has been a major factor driving prices up. Although the number of permits authorized for new privately owned housing units has been improving (1.15 million units over a 12-month period in April 2016), 53 percent of new construction has been multi-family structures, which are mostly for rental occupancy.[3] In 2005, multi-family structures accounted for only 20 percent of new construction, so the availability of single-units for purchase among recently constructed properties is lower than is historically normal. REALTORS® reported low inventory of properties in the lower price range and for those that are move-in ready.

[1] The index for each state is based on data for the last three months to increase the observations for each state. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations. Respondents were asked “How do you rate the past month’s buyer traffic in the neighborhood(s) or area(s) where you make most of your sales?” Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. Index values 25 and lower are considered “very weak,” values greater than 25 to 49 are considered “weak,” a value of 50 is considered “moderate,” values greater than 50 to 75 are considered “strong,” and values greater than 76 are considered “very strong.”

[2] Respondents were asked “How do you rate the past month’s seller traffic in the neighborhood(s) or area(s) where you make most of your sales?” Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. Index values 25 and lower are considered “very weak,” values greater than 25 to 49 are considered “weak,” a value of 50 is considered “moderate,” values greater than 50 to 75 are considered “strong,” and values greater than 76 are considered “very strong.”

[3] Based on the latest data for the fourth quarter of 2015, 95 percent of the multi-family units completed were for rental occupancy with regions varying from 87 percent in the Northeast to 98 percent in the Midwest. Source: Census Bureau. Quarterly Starts and Completions by Purpose and Design, Units Per Building, 2015 preliminary data. https://www.census.gov/construction/nrc/pdf/quarterly_starts_completions.pdf

Office Vacancies Decline in Second Quarter

Thu, 05/19/2016 - 10:31

The U.S. economy sputtered during the first quarter of 2016, as global economic activity throttled back and companies found financial markets’ volatility unsettling. Based on the first estimate from the Bureau of Economic Analysis, real gross domestic product (GDP) rose at an annual rate of 0.5 percent. The figure is in line with last year’s first quarter reading of 0.6 percent. The GDP number remained well below the long-run historical average of 3.0 percent.

The first quarter employment landscape offered a few high points. Payrolls rose at a solid pace, adding 609,000 net new jobs. Average weekly earnings of private employees rose by 2.1 percent in the first quarter of this year, compared to one year earlier.

 

Employment in private service-providing industries provided the main thrust for new job growth during the first quarter of the year, with 561,000 net new jobs.  The retail trade boosted payrolls during the quarter by 157,500 net positions. Education and health gained 146,000 new positions. With warmer-than-usual weather, leisure and hospitality payrolls rose by 95,000 net new positions. Employment in professional and business services gained 70,000 net new jobs, the slowest pace in five years. Financial services added 39,000 new positions to payrolls during the period, keeping demand for office space positive.

Office net absorption totaled 7.7 million square feet in the first quarter of the year, a decline from last quarter’s 18.7 million square feet, based on data from JLL. Occupancy growth—expansionary leases—drove leasing activity during the quarter, coupled with increases in shared office space. Office construction added 10.6 million square feet to the supply pipeline during the quarter. Overall office vacancies rose 10 basis points on a yearly basis, to 14.8 percent in the first quarter. CBD office properties continued posting lower availability than their suburban counterparts. Rents for office properties rose 3.2 percent during the first quarter.

Commercial fundamentals in smaller markets continued improving during the first quarter of 2016, but at a slower pace. Leasing volume during the quarter rose 1.3 percent over the prior quarter. Leasing rates advanced at a slower pace as well, rising 1.9 percent in the first quarter, compared with the 2.5 percent advance recorded during the fourth quarter. Office properties posted leases averaging $43 per square foot. Office vacancies declined 174 basis points, to 13.4 percent during the first quarter.

 

NAR members’ average gross lease volume for the quarter was $473,000, 36.4 percent lower than the previous period. New construction picked up, posting a 5.3 percent gain from the fourth quarter of 2015, compared with 3.7 percent in the prior quarter.

Lease concessions declined 3.9 percent.  Tenant improvement (TI) allowances averaged $9 per square foot per year nationally.

To access the Commercial Real Estate Outlook: 2016.Q2 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.

Small Cap Commercial Markets Maintain Momentum in 2016.Q1

Wed, 05/18/2016 - 08:58

Commercial sales transactions span the price spectrum, but tend to be measured and reported based on size. Commercial real estate (CRE) deals at the higher end—$2.5 million and above—comprise a large share of investment sales. Smaller commercial transactions tend to be obscured given their size. However, these smaller properties provide the types of commercial space where average Americans engage on a daily basis—e.g. grocery-anchored shopping centers, local warehouses, small offices, supermarkets, etc.  These are the types of buildings that are important in local communities, and REALTORS® are active in serving these markets.

The National Association of REALTORS® Commercial Real Estate Outlook: 2016.Q2 report focuses on market performance in both large (LCRE) and small commercial (SCRE) sectors.  The report provides an overview of economic indicators, investment sales and leasing fundamentals.

Investment Sales

The pace of commercial transactions dropped in the first quarter of 2016, following an upbeat 2015. The volume of commercial sales in LCRE markets totaled $111 billion, a 20 percent year-over-year decrease, according to Real Capital Analytics (RCA). The first quarter data saw yearly declines in both individual and portfolio transactions, of 11 percent and 24 percent, respectively.

Continuing the trends from 2015, apartment transactions comprised the largest share of first quarter volume, with $38.6 billion in sales, followed by office properties, which accounted for $31.2 billion. Retail and industrial sales totaled $17.9 billion and $12.6 billion, respectively.

In comparison, sales in SCRE markets rose 8.5 percent year-over-year during the first quarter, based on REALTORS® market data. The average sale transaction price totaled $1.1 million during the quarter.

Investment Prices

Even with declining sales volume, prices in LCRE markets rose. However, the advances moderated from the fast pace of the past two years. Prices in markets covered by Real Capital Analytics gained 8.6 percent during the first quarter of 2016, based on RCA’s Commercial Property Price Index. The advance was driven by strong appreciation in prices of retail and apartment properties, which advanced 11.8 percent and 11.2 percent, respectively.  Prices for office properties in central business districts (CBD) advanced 10.5 percent.

Separately, additional price indices also advanced. The Green Street Advisors Commercial Property Price Index rose 8.4 percent on a yearly basis during the first quarter, reaching a value of 123.4. The National Council of Real Estate investment Fiduciaries (NCREIF) Price Index increased 8.7 percent year-over-year in the first quarter of 2016, to a value of 257.3.

Capitalization rates in LCRE markets averaged 6.7 percent in the first quarter, based on RCA reports, 30 basis points lower compared with the prior year. Cap rate compression continued for apartment and office CBD properties, reaching values of 5.7 percent and 5.4 percent, respectively.

 

With inventory shortage continuing as a main concern, prices in SCRE markets rose a more moderate 5.1 percent year-over-year during the period. Average capitalization rates declined to an average 7.2 percent across all property types, a 60 basis point compression on a yearly basis. Apartments posted the lowest cap rate, at 6.9 percent, followed by hotel properties with average cap rates at 7.1 percent.  Office and retail spaces tied with cap rates of 7.3 percent. Industrial transactions reported the highest comparative cap rates—7.4 percent.  It is worth noting that these cap rates are higher than those in LCRE markets, reflecting activity in markets where REALTORS® are more engaged.

Steady Progress on TRID

Tue, 05/17/2016 - 13:26

The average delay in time-to-close fell in April, marking the 4th consecutive month of improvement. On average, sales that closed in April took 3 days longer than the same time a year earlier. April’s reading is down from a peak delay of 5.7 days in December of 2015.

Since last December the average time-to-close a home sale compared to the same month a year earlier, a means of adjusting for seasonal patterns, has fallen suggesting that TRID-related delays continue to ease. Delays remain nearly three times their pre-TRID level and concentrated in a small portion of the market.

TRID or Know Before You Owe is a new set of rules governing the closing process. These rules are intended to help make consumers more aware of their liability, while streamlining the process. Delays are likely to continue to ease as successful originators gain market share and with improvements in vendor software. The CFPB recently announced that it will address some of the issues raised about Know Before You Owe later this year.

Home Buying and Homeownership in High-Income Areas

Tue, 05/17/2016 - 11:19

By: Danielle Hale, Managing Director, Housing Research;  Hua Zhong, Data Analyst, and Nadia Evangelou, Research Economist

In some parts of the United States, a $100,000 income would suffice to rank you among the area’s elites; in other parts of the country, a similar income would not suffice to put you in the top half of recent home buyers. We reviewed data for the 186 counties with at least 5,000 home buying households in 2014. For the most part, these are more highly populated counties, but there are some counties with a large population of households who do not meet these criteria because they do not have many owners or recent movers[1].

In this blog, we look at the 41 counties where median income among recent home buyers[2] was greater than $100,000.

High-income home buyers are geographically dispersed but concentrated in or near major metro areas

While they are spread throughout the Northeast, Midwest, South, and West, every one of the 41 counties that made this list is in a metropolitan area.  The top twenty metro areas by population are well represented on the list.  Only Philadelphia, Miami, Phoenix, Riverside, Minneapolis, Tampa, and St. Louis are missing where in many cases recent buyers had incomes near but not quite over the $100,000 threshold[3].

California and New York are Expensive for Recent Buyers

Even though we are looking at higher-income areas, higher home prices show that relative to incomes, homes are still somewhat costly, especially in California. For all recent home purchasers in the US, the typical home price to income ratio was 2.3 to 2.8[4] while in areas with substantial home buying, the price to income ratio ranged from 2.8 to 3.1[5].

In these 41 high income purchase areas, the typical home price to income ratio was 3.5 to 3.7[6]. Notably, California counties on this list all had home price to income ratios of 4.0 or higher. A handful of New York counties: New York, Nassau, and Kings counties were the only other counties with price to income ratios of 4.0 or higher among recent home buyers.

 

However, Other Counties Remain Affordable in Spite of High Income Home Buyers

In contrast, high-incomes do not seem to be pushing up home prices in other high-income counties. In Washtenaw MI, Oakland MI, Montgomery TX, McHenry IL, Collin TX, Williamson TX, Hamilton IN, and Fulton GA home prices of recently purchased homes were less than 3 times the median income of those purchasers—much more in line with what is typical throughout the US. Washtenaw County, MI was the most affordable high income county with a price to income ratio of 1.7 among recent purchasers.  New York County, NY was the least affordable place among the large high income US counties with a ratio of 6.4 for recent purchasers.

 

Homeownership Rates vary

Homeownership rates vary substantially in these 41 counties. While the typical rate of homeownership among these larger, high-income counties matched that for all US counties (63.9 percent), there was a wide range: from 22.9% (New York, NY) to 81.0% (Williamson, TN). One reason why some of these areas may have lower rates of homeownership is the relatively high cost of housing in well-established areas with a history of high-paying jobs and economic vitality coupled with uneven income distribution. Only the high-income can afford the cost of housing in areas like New York County or Kings County, NY where prices are high but incomes do not necessarily match, so homeownership rates are lower (22.9 and 28.5 percent, respectively). In other areas, such as Nassau County, NY, high-incomes are more prevalent (50 percent of all households earn $100,000 or more versus only 40 percent in New York County and 22 percent in Kings County), so higher homeownership rates and higher incomes go hand in hand.

 

While Recent Buyers Had High Incomes, this is not Necessarily True for All Home Owners

Median incomes among recent home buyers were the determining factor in selection for this study, but in some areas, the profile of recent home buyers looks quite different from the profile of all home owners. In 83 percent of high-income counties (34 of 41) the median income of recent buyers exceeded the median income of all homeowners (of which new purchasers are typically 5.5 to 6.0 percent). In fact, this was more common in the high-income counties selected in the study than among all high mover counties in which recent buyer median income exceeded the median income for all home owners in only 63 percent of counties.

In 17 of the 41 counties selected for this study, the median income of all home owners did not exceed $100,000, though it remained quite high (ranging from $80,133 in Montgomery, TX to $99,724 in Contra Costa, CA). In two counties, Mercer NJ and Chester PA, the median income of all home owners exceeded $100,000 in spite of the fact that the median income of recent purchasers was just outside of this figure[7].

See how income, home price to income ratio and homeownership rate vary in all high-mover counties in the visualization below.

[1] Bronx County NY, El Paso TX, Hudson NJ, Providence RI, Guilford NC, Camden NJ, Union NJ, Hampden MA, Kane IL, East Baton Rouge LA, Jefferson LA, Virginia Beach City VA, Richmond NY, Passaic NJ, Waukesha WI, Mobile AL, Berks PA, Orleans LA, Pulaski AR, Westmoreland PA, Seminole FL, Stark OH, Forsyth NC, Solano CA, Richland SC, Santa Barbara CA, Madison AL, St Louis City MO, Hamilton TN, Tulare CA, Lehigh PA, Nueces TX, Fayette KY, Luzerne PA, Albany NY, Orange NY all rank in the top 200 counties by total number of households yet do not have sufficient recent home buyers to have been reviewed in this study. Some are highly populated but have very low homeownership rates. Some have more typical rates of homeownership but lower rates of moving among homeowners.

[2] Recent home buyers are those who live in owner-occupied property who report moving into the property within the last year according to the Census Bureau’s 2014 American Community Survey.  This could include a small number of households who inherited or pre-purchased their homes, but it is a reasonable proxy for recent home buyers.

[3] Notably, Bucks, Chester, and Montgomery PA – all in the Philadelphia metro area and Hennepin MN in the Minneapolis metro area had median buyer incomes between $95,000 and $100,000, just outside of the threshold studied.

[4] The median price to income ratio among all counties in the US was 2.3, the average price to income ratio was 2.4, and the population weighted average price to income ratio was 2.8.

[5] The median price to income ratio among counties with greater than 5,000 recent home purchases in the US was 2.8, the average price to income ratio was 3.0, and the population weighted average price to income ratio was 3.1.

[6] The median price to income ratio among counties with greater than 5,000 recent home purchases in the US was 3.5, the average price to income ratio was 3.6, and the population weighted average price to income ratio was 3.7

[7] Mercer NJ had a median income of $85,699 among recent buyers while Chester PA recent buyers had a median income of $99,015.

Raw Count of Home Sales (March 2016)

Wed, 05/11/2016 - 15:56
  • Existing-home sales increased 5.1 percent in March from one month prior while new home sales dropped 1.5 percent.  These headline figures are seasonally adjusted figures and are reported in the news.  However, for everyday practitioners, simple raw counts of home sales are often more meaningful than the seasonally adjusted figures.  The raw count determines income and helps better assess how busy the market has been.
  • Specifically, 420,000 existing-homes were sold in March while new home sales totaled 48,000.  These raw counts represent a 34 percent gain for existing-home sales from one month prior while new home sales increased 7 percent.  What was the trend in recent years?  Sales from February to March increased by 30 percent on average in the prior three years for existing-homes and rose 9 percent for new homes.  So this year, existing-homes outperformed compared to their recent norm while new home sales underperformed.
  • Why are seasonally adjusted figures reported in the news?  To assess the overall trending direction of the economy, nearly all economic data – from GDP and employment to consumer price inflation and industrial production – are seasonally adjusted to account for regular events we can anticipate that have an effect on data around the same time each year.  For example, if December raw retail sales rise by, say, 20 percent, we should not celebrate this higher figure if it is generally the case that December retail sales rise by 35 percent because of holiday gift buying activity.  Similarly, we should not say that the labor market is crashing when the raw count on employment declines in September just as the summer vacation season ends.  That is why economic figures are seasonally adjusted with special algorithms to account for the normal seasonal swings in figures and whether there were more business days (Monday to Friday) during the month.  When seasonally adjusted data say an increase, then this is implying a truly strengthening condition.
  • What to expect about home sales in the upcoming months in terms of raw counts?  Independent of headline seasonally adjusted figures, expect busier activity in April and even better activity in May for existing-home sales. For example, in the past 3 years, April sales typically increased by 11 to 19 percent from March and with more gains in May when sales rose by 10 to 13 percent from April. For the new home sales market, the raw sales activity in April tends to be better than that occurring in March, while May’s activity seems to be more volatile. For example, in the past 3 years, April sales rose by 4 to 5 percent from March. However, sales in May decreased by 2 to 7 percent in 2015 and 2013 while they increased 10 percent in 2014.

Net Operating Income Continues Upward Trend in REALTOR® Commercial Markets

Mon, 05/09/2016 - 10:44

Commercial real estate continued on an upward trajectory in 2015, building on improving fundamentals and investment momentum.  In tandem with rising economic conditions, leasing strengthened during the year.  Growing net absorption led to declining vacancies and accelerating rent growth.  As employment gains are expected to continue into 2016, demand for commercial space is expected to advance.

The improving employment landscape in office-using industries drove demand for office space.  Almost half of office leasing activity during the year was made up of company expansions, a positive development. Even with 44.2 million square feet of new supply, office vacancy declined 40 basis points year-over-year, to the lowest level in eight years—14.7 percent by the fourth quarter. Rents for office properties rose 2.2 percent during the fourth quarter, to $31.26 per square foot, according to JLL.

Industrial properties found favorable conditions in 2015 due to international trade and solid gains in online retail sales.   National vacancies for industrial buildings dropped in the single digits during the year, leading to higher rents.

Net absorption of industrial space totaled 231.2 million square feet in 2015, based on data from JLL. With new supply clocking in at 177.3 million square feet, availability rates declined to 6.4 percent by the fourth quarter.  Industrial rents rose 5.6 percent over the year, to an average of $4.93 per square foot.

With consumers keeping spending on an upward trajectory, the retail sector recorded positive demand matched by restrained supply, leading to declining vacancies and moderately growing rents.

Retail net absorption totaled 88.3 million square feet in 2015, according to JLL. Constrained new supply in high-demand areas lowered vacancies to 5.7 percent by the last quarter of the year. Rents increased 2.1 percent during the year, to an average $15.84 per square foot.

Demand for multifamily properties continued on an upward path. Renter occupied housing units totaled 42.6 million units in the fourth quarter of 2015, a 300,000 unit advance from the fourth quarter of 2014, based on U.S. Census Bureau data. National vacancy rates averaged 7.0 percent for rental housing during the fourth quarter, unchanged from the same period in 2014. Median rents for rental units averaged $850 by the end of the year.

Underpinning these improving fundamentals, commercial asset cash flow is certainly on the rise. Based on the REALTORS® Commercial Lending Trends 2016 report, net operating income (NOI) increased in 57 percent of markets. For 22 percent of REALTORS®, NOI increased in the 1 – 4 percent range. For 21 percent of respondents, NOI rose between 5 – 9 percent, while for 14 percent of commercial practitioners, the increase in NOI occurred in the 10 – 15 percent range.

According to the 2016 data, the increase in NOI moderated from the accelerating trends of the past few years. The percentage of REALTORS® who reported “No Change” in NOI rose from an average of 25 percent during 2012 – 2014 to 32 percent in 2015, and then declined to 29 percent this past year. The figure indicates a broadening in the patterns of CRE fundamentals recovery.

 

For more information and the full report, access NAR’s Commercial Lending Trends 2016 at http://www.realtor.org/reports/commercial-lending-trends-survey.

 

Pages